How to Consolidate Credit Card Debt

Q: I have eight credit cards to pay, with a total amount of $13,000. I pay eight separate bills each month, and I pay only minimum payments. How can I make only one payment each month?

A: First, a wake-up call. With eight active credit cards on your report, few banks will entertain a balance transfer application from you right now. Since you wrote that you're just making minimum payments, I'm guessing that you may not meet the income requirements to support a ninth account.

Second, it's time to set up an automated system that can make your bill payments run like clockwork. To do this, you'll need to figure out your weekly budget for everything from food to utilities. Break it down by month, even if you get paid weekly or biweekly. Figure out the maximum amount you can afford to throw at your credit card bills, even if it's just one dollar more than the sum of your monthly payments. This will help you understand how to get ahead of your payment deadlines.

Third, set up an online checking account that you can use just to make automatic bill payments to your credit card companies. I suggest using a bank that's separate from any of the lenders who issued your credit cards. I've got two reasons for this tactic. If you fall behind on your credit card payments, some lenders may opt to pull cash from your checking account to cover your balance. You don't want to risk your other cards' payments getting disrupted if you end up in a dispute with one lender. Also, if someone manages to skim or clone your credit card, you don't want anyone to use that information to gain access to your checking account. Perkstreet Financial and ING Direct both offer free checking accounts with free electronic bill pay services.

Finally, set your employer's direct deposit to carve out money from each paycheck, so you've got enough cash in your bill pay checking on the first day of each month to cover all eight of your minimum payments. The first month will feel like a stretch, but you'll get used to the new rhythm pretty quickly. Using direct deposit this way automates getting cash into your account, so you're not tempted to spend it. Setting up your bill pay service to automatically pay your cards every month means you'll never miss a payment.

From your primary checking account, make additional payments to the credit card with the biggest current balance whenever you can. (Or if you prefer, pay down the smallest balance first. Or pay the card with the highest interest charges.)

This automated version of a "debt snowball" strategy can put those credit card payments out of your mind, achieving your goal of simplifying your bookkeeping. But you'll have to lock up those credit cards for now, to really make it work.

When paying your credit card bills feels like a full-time job, your checkbook and your mailbox can both fill you with dread. If you can make some commitments to changing your relationship with your credit cards, you can streamline your monthly bill payments while knocking down your debt.

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